It is important to highlight that CDS are a derivative financial instrument, whose values are determined by traders, through demand and supply, and do not necessarily reflect economic facts or fundamentals.

In this regard, a CDS spread is a very different indicator to Malaysia’s “A- / A3” credit rating, which reflects the strong ability of the Government of Malaysia to service its debt obligations, with a low probability of default.

It is a fact that the 1MDB rationalisation is being implemented, as planned.

The fundamentals of the plan involve, among others, a “debt for asset swap” with IPIC, a sale of equity in Edra Energy, a sale of equity in Bandar Malaysia, sale of master-planned land in Tun Razak Exchange (TRX) and disposal of non-core assets.

The combined proceeds from the rationalisation plan will substantially reduce 1MDB’s debt, to a sustainable and manageable level by Q4 2015.

In particular, 1MDB highlights the following key facts and fundamentals:

• 1MDB has successfully sold, in 2015, over RM 1 billion of land in TRX.
• Final, binding bids will be received from domestic and international shortlisted bidders for both Edra Energy and Bandar Malaysia between mid-end October 2015, with Sale & Purchase Agreements (SPA) for both assets being executed by December 2015
• 1MDB has consistently met, with no default, its interest service and principal repayment obligations, to both foreign and domestic lenders.

The Government of Malaysia has guaranteed RM5.8 billion of 1MDB debt (of which, RM 5 billion is due only in 2039) and provided a Letter of Support for a US$3 billion bond issued by 1MDB, which is due only in 2023.

At current exchange rates, the principal amount of this long-term debt is approx. RM18.7 billion. Per statistics on the website of Bank Negara Malaysia, this equates to circa 1.7% of Malaysia’s 2014 GDP of approx. RM1.1 trillion and circa 2.9% of Central Government Q2 2015 debt of approx. RM 628 billion.

Accordingly, whilst there is a contingent liability on the Government of Malaysia, 1MDB is confident, based on the facts and fundamentals above, that it will continue to meet its debt service obligations from a successful implementation of the rationalisation plan.